Aggregate Planning

Alternatives

Quarter

1

2

3

4

TotalCapacity

UnusedCapacity

Requirements

Qua

rter

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Subcontract

Overtime

Regular time

Beginning

inventory

1

2

3

4

Aggregate PlanningAggregate Planning

Production Planning HorizonsProduction Planning Horizons

Master Production Scheduling Master Production Scheduling

Production Planning and Control SystemsProduction Planning and Control Systems


Long-Range Capacity PlanningLong-Range Capacity PlanningLong-RangeLong-Range

(years)(years)

Medium-RangeMedium-Range(6-18 months)(6-18 months)

Short-RangeShort-Range(weeks)(weeks)

Very-Short-RangeVery-Short-Range(hours - days)(hours - days)

Production Planning: Units of MeasureProduction Planning: Units of Measure

Master Production SchedulingMaster Production Scheduling

Production Planning and Control SystemsProduction Planning and Control Systems


Long-Range Capacity PlanningLong-Range Capacity PlanningEntire Entire

Product LineProduct Line

ProductProductFamilyFamily

SpecificSpecificProduct ModelProduct Model

Labor, Materials,Labor, Materials,MachinesMachines

The long term plan is defined at the corporate level. These

decisions are more strategic. This activity is often referred

to as "strategic planning". The following needs to be

addressed in a strategic plan

which market segment ?

how to reach it ?

which plant / facility ?

which prodn policy ? (make to order, make to stock etc.)

which prodn system ? (cellular, job shop, mixed etc.)

Steps in Aggregate Steps in Aggregate PlanningPlanning

Define an aggregate unit

An aggregate unit, such as the labor hour or the machine

hour must be selected in order to translate the demand

for the different products into the same units. This unit

must be related to the capacity you want to plan

(machine or manpower).

EEstimate aggregate demand (over 12-24 months)

Here we need the monthly forecast for all the products for

the period considered (the intermediate term). These

forecasts are translated into aggregate units.

Determine an aggregate production plan;

On the basis of this demand, we can select the best

production plan.

Aggregate Planning ObjectivesAggregate Planning Objectives

Minimize Costs/Maximize ProfitsMinimize Costs/Maximize Profits

Maximize Customer ServiceMaximize Customer Service

Minimize Inventory InvestmentMinimize Inventory Investment

Minimize Changes in Production RatesMinimize Changes in Production Rates

Minimize Changes in Workforce LevelsMinimize Changes in Workforce Levels

Maximize Utilization of Plant and EquipmentMaximize Utilization of Plant and Equipment

Managerial InputsManagerial Inputs

Aggregate plan

Aggregate plan

Demand forecasts


Cost data Accounting and financeAggregate

plan

Demand forecasts


Labor-market conditions Training capacity

Human resources


plan

Demand forecasts


New products Product design changes Machine standards

EngineeringLabor-market conditions Training capacity

Human resources


plan

Demand forecasts


Supplier capabilities Storage capacity Materials availability

Materials

Current machine capacities Plans for future capacities Workforce capacities Current staffing level

Operations

New products Product design changes Machine standards

EngineeringLabor-market conditions Training capacity

Human resources


plan

Demand forecasts


Determine requirements for planning horizon

Aggregate Planning ProcessAggregate Planning Process


Identify alternatives, constraints, and costs





Prepare prospective plan for

planning horizon




planning horizon

Is the plan acceptable?





planning horizon


NoNo





planning horizon

Implement and update the plan


NoNo

YesYes





planning horizon

Move aheadto next

planning session

Implement and update the plan


NoNo

YesYes


Regular-Time CostsRegular-Time Costs

Overtime CostsOvertime Costs

Hiring and Hiring and

Layoff CostsLayoff Costs

Inventory Inventory

Holding CostsHolding Costs

Backorder and Stockout CostsBackorder and Stockout Costs

Aggregate Planning CostsAggregate Planning Costs

Production PlanProduction Plan

1500 1500 —

1250 1250 —

1000 1000 —

750 750 —

500 500 —

250 250 —

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RequirementsRequirements


1500 1500 —

1250 1250 —

1000 1000 —

750 750 —

500 500 —

250 250 —

0 0 —| | | |11 22 33 44

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Production planProduction plan



1500 1500 —

1250 1250 —

1000 1000 —

750 750 —

500 500 —

250 250 —

0 0 —| | | |11 22 33 44

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InventoryInventoryaccumulationaccumulation


110110

400400

1500 1500 —

1250 1250 —

1000 1000 —

750 750 —

500 500 —

250 250 —

0 0 —| | | |11 22 33 44

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InventoryInventoryconsumptionconsumption



InventoryInventoryaccumulationaccumulation

Three Methods of Aggregate PlanningThree Methods of Aggregate Planning

Level StrategyLevel Strategy - Constant Work Force, and as demand - Constant Work Force, and as demand

changes Vary Only Inventory & Stock outschanges Vary Only Inventory & Stock outs

Chase StrategyChase Strategy - as demand changes, hire and layoff to - as demand changes, hire and layoff to

produce the units required. Some inventory also has to be produce the units required. Some inventory also has to be

accounted for, because of rounding errorsaccounted for, because of rounding errors

Mixed StrategyMixed Strategy - use any or all of the production variables - use any or all of the production variables

to determine the lowest cost planto determine the lowest cost plan

Production VariablesProduction Variables

As demand changes these are the things management can As demand changes these are the things management can

change to meet the changing demand. These variables change to meet the changing demand. These variables

include:include:

Number of workersNumber of workers - More or less workers by hiring and layoff - More or less workers by hiring and layoff

changes the number of units one can producechanges the number of units one can produce

Inventory Inventory - If you have additional capacity now, produce extra - If you have additional capacity now, produce extra

units and store them in inventory to satisfy increasing demand units and store them in inventory to satisfy increasing demand

in the futurein the future

Production VariablesProduction Variables

Stock out -Stock out - This is negative inventory. If demand is more than This is negative inventory. If demand is more than

you can produce, use a stock out and satisfy demand in the you can produce, use a stock out and satisfy demand in the

future when capacity exceeds demand. future when capacity exceeds demand.

Attempt should be such that stock outs do not occur in the last Attempt should be such that stock outs do not occur in the last

period of any aggregate plan. period of any aggregate plan.

SSubcontracting ubcontracting - Pay some other business to produce extra - Pay some other business to produce extra

units needed.units needed.

Overtime -Overtime - Ask employees to produce more units by working, Ask employees to produce more units by working,

for example, more than the normal eight hours/day or 40 for example, more than the normal eight hours/day or 40

hours/week.hours/week.

LEVEL STRATEGYLEVEL STRATEGY

Example 1Example 1

Level Strategy for ServicesLevel Strategy for Services Dock Aisle

DockDock AisleAisle

TIME PERIODTIME PERIOD

11 22 33 44 55 66 TotalTotal

Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878

Current employment = 10 part-time empCurrent employment = 10 part-time emp * Number of part-time employees* Number of part-time employees

Level Strategy for ServicesLevel Strategy for Services

DockDock AisleAisle

1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period2.2. No backorders are permittedNo backorders are permitted3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity4.4. The following costs can be assigned:The following costs can be assigned:

Regular-time wageRegular-time wage 2,000/period at 20 2,000/period at 20 hours/weekhours/week

Overtime wagesOvertime wages 150% of regular-time150% of regular-timeHiringHiring 1,000/person1,000/personLayoffsLayoffs 500/person500/person



11 22 33 44 55 66 TotalTotal


Current employment = 10 part-time empCurrent employment = 10 part-time emp * Number of part-time employees* Number of part-time employees

Dock Aisle


11 22 33 44 55 66 TotalTotal


Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks




Peak Requirement


Dock Aisle


11 22 33 44 55 66 TotalTotal






Peak Requirement

1.20w = 18 employees in peak period


Dock Aisle


11 22 33 44 55 66 TotalTotal






Peak Requirement

1.20w = 18 employees in peak period

w = = 15 employees18

1.20


1 2 3 4 5 6

Requirement 6 12 18 15 13 14 78

level 15 15 15 15 15 15 90 180000undertime 9 3 0 0 2 1 15

overtime 0 0 3 0 0 0 3 9000Hires 5 0 0 0 0 0 5 5000Fires 0 0 0 0 0 0 0 0

194000

CostTIME PERIOD

Total

LEVEL STRATEGYLEVEL STRATEGY

Example 2Example 2

Know the demandKnow the demand

We would have to know each forecast value for the time We would have to know each forecast value for the time

period of our aggregate plan. Consider the following period of our aggregate plan. Consider the following

forecasting information.forecasting information.

Month J anuary Feb. March April May June

Forecast 1,800 1,500 1,100 900 1,100 1,700

Safety stockSafety stock

Its purpose is to satisfy demand when demand is greater than Its purpose is to satisfy demand when demand is greater than

what we expect ( the forecasted value).what we expect ( the forecasted value).

A very simple method based on company policy can be used to A very simple method based on company policy can be used to

calculate safety stock. For eg. The safety stock value could be calculate safety stock. For eg. The safety stock value could be

25% of the forecasted value for that period.25% of the forecasted value for that period.


Forecast 1,800 1,500 1,100 900 1,100 1,700

Safety Stock 450 375 275 225 275 425

The The beginning inventorybeginning inventory value (in this case for Jan.) would have value (in this case for Jan.) would have

to be known before we could continue. In some cases one can to be known before we could continue. In some cases one can

assume the value is zero to continue with calculations. assume the value is zero to continue with calculations.

The remaining beginning inventory values are determined from The remaining beginning inventory values are determined from

the safety stock in the previous period.the safety stock in the previous period.


Forecast 1,800 1,500 1,100 900 1,100 1,700

Safety Stock 450 375 275 225 275 425

Beginning Inventory

400

Production RequiredProduction Required is determined by adding the forecast plus is determined by adding the forecast plus

the safety stock and subtracting the beginning inventory for the safety stock and subtracting the beginning inventory for

each period: each period:

FORECAST + SAFETY STOCK - BEGINNING INVENTORYFORECAST + SAFETY STOCK - BEGINNING INVENTORY

J anuary Feb. March April May June

Forecast 1,800 1,500 1,100 900 1,100 1,700

Safety Stock 450 375 275 225 275 425

Beginning Inventory

400 450 375 275 225 275

Required Production

1,850 1,425 1,000 850 1,150 1,850

Starting Conditions Starting Conditions

Storage or inventory holding Cost = Rs. /unit-monthStorage or inventory holding Cost = Rs. /unit-month

Standard Pay Rate = Rs. /hourStandard Pay Rate = Rs. /hour

Overtime Rate = Rs. /hourOvertime Rate = Rs. /hour

Cost of Stockout = Rs. /unit-monthCost of Stockout = Rs. /unit-month

Cost of Subcontracting = Rs. /unitCost of Subcontracting = Rs. /unit

Hiring and Training Cost = Rs. /personHiring and Training Cost = Rs. /person

Layoff Costs = Rs. /personLayoff Costs = Rs. /person

Worker-hours/unit = Worker-hours/unit = hrs/unithrs/unit

Manufacturing Cost = Rs.Manufacturing Cost = Rs.

Beginning Work Force = No. of workers Beginning Work Force = No. of workers

Storage CostStorage Cost (Inventory holding cost)(Inventory holding cost) = Rs. /unit-month = Rs. /unit-month

Each unit that is held in inventory for one month will cost us Each unit that is held in inventory for one month will cost us

some amount. This cost includes the costs ofsome amount. This cost includes the costs of

storage spacestorage space

administrative costsadministrative costs

lost income (cost of capital) from having this item sitting in lost income (cost of capital) from having this item sitting in

inventoryinventory

Standard Pay RateStandard Pay Rate = Rs. /hour = Rs. /hour

This is the hourly wage rate for direct labor. This is the hourly wage rate for direct labor.

Overtime RateOvertime Rate = Rs. /hour = Rs. /hour

Often when employees work more than the regular time, they are Often when employees work more than the regular time, they are

paid at a higher pay rate for the addition hours. This higher pay paid at a higher pay rate for the addition hours. This higher pay

rate is usually 1.5 times the Standard pay rate. rate is usually 1.5 times the Standard pay rate.

Eg. If regular rate is 60/hrEg. If regular rate is 60/hr

1.5 times Rs. 60 = Rs. 90 /hr1.5 times Rs. 60 = Rs. 90 /hr

Cost of Stockout (back order)Cost of Stockout (back order) = Rs. /unit-month = Rs. /unit-month

This is our cost if we fail to satisfy demand. This cost includes This is our cost if we fail to satisfy demand. This cost includes

the cost of:the cost of:

PenaltiesPenalties

Possible loss of sale if customer buys from an other businessPossible loss of sale if customer buys from an other business

Possible loss in future sales Possible loss in future sales

Loss of good will Loss of good will

Administrative cost for keeping track of back-ordered Administrative cost for keeping track of back-ordered

customers.customers.

Cost of SubcontractingCost of Subcontracting = Rs. /unit = Rs. /unit

Cost of having an other business produce one unit of product to Cost of having an other business produce one unit of product to

meet the demand.meet the demand. This is gThis is given as a marginal cost or as a total iven as a marginal cost or as a total

cost. cost.

Marginal CostMarginal Cost : the cost in addition (above and beyond) our cost : the cost in addition (above and beyond) our cost

to produce that same unit (the manufacturing cost). to produce that same unit (the manufacturing cost).

Total CostTotal Cost : the amount the other business would receive for : the amount the other business would receive for

producing one unit. producing one unit.

Hiring and Training CostHiring and Training Cost = Rs. /person = Rs. /person

This is the cost to add another employee to our work force. This This is the cost to add another employee to our work force. This

includes the cost of:includes the cost of:

advertisingadvertising

interviewing and selectioninterviewing and selection training andtraining and

less than full productivity for the new employee during the training less than full productivity for the new employee during the training

periodperiod

Layoff CostsLayoff Costs = Rs. /person = Rs. /person

This includes the cost of:This includes the cost of:

Severance paySeverance pay

Increases in unemployment insuranceIncreases in unemployment insurance

Negative reactions by remaining workers because of Negative reactions by remaining workers because of

uncertainties about their futuresuncertainties about their futures

Worker-hours/unitWorker-hours/unit

This is the direct labor content of the product being This is the direct labor content of the product being

manufactured. It can be used for cost calculations.manufactured. It can be used for cost calculations.

For eg. For eg.

If wage rate is Rs. 60/hr and it takes 5 hrs/unitIf wage rate is Rs. 60/hr and it takes 5 hrs/unit

Direct labor cost/unit is 5 hours/unit X 60/hour = Rs. 300/unitDirect labor cost/unit is 5 hours/unit X 60/hour = Rs. 300/unit

As a comparison; if we produce one unit using overtime, the As a comparison; if we produce one unit using overtime, the

cost would be 5 hours/unit X 90/hour = Rs. 450/unit. cost would be 5 hours/unit X 90/hour = Rs. 450/unit.

The difference (450 - 300) Rs. 150 is the marginal cost of The difference (450 - 300) Rs. 150 is the marginal cost of

producing a unit on overtime.producing a unit on overtime.

Beginning Work ForceBeginning Work Force

This is the number of production workers we have when we This is the number of production workers we have when we

start aggregate planning If we want to produce more units start aggregate planning If we want to produce more units

than this work force can produce on regular time, than we than this work force can produce on regular time, than we

would need to hire additional workers and pay the hiring and would need to hire additional workers and pay the hiring and

training costs for those new employeestraining costs for those new employees

The first question is “The first question is “How many workers?How many workers?””


Forecast 1,800 1,500 1,100 900 1,100 1,700

Safety Stock 450 375 275 225 275 425

Beginning Inventory

400 450 375 275 225 275

Days in a month

22 19 21 21 22 20

Required Production

1,850 1,425 1,000 850 1,150 1,850

Cum Prodn 1,850 3,275 4,275 5,125 6,275 8,125

How many workers?How many workers?

8,125 units need to be produced during Jan. - June8,125 units need to be produced during Jan. - June

Assume that each unit requires 5 labor hoursAssume that each unit requires 5 labor hours and e and each worker ach worker

works 8 hours/dayworks 8 hours/day

The 6-month period Jan. - June includes 125 work daysThe 6-month period Jan. - June includes 125 work days

(8,125 units X 5 hours/unit) / (8 hours/person day X 125 days) = (8,125 units X 5 hours/unit) / (8 hours/person day X 125 days) =

40.6 persons40.6 persons

40.6 is rounded up (to 41), because if we round down we will not 40.6 is rounded up (to 41), because if we round down we will not

produce the required 8125 units.produce the required 8125 units.

Cumulative ProducedCumulative Produced

These values are calculated from the formula:These values are calculated from the formula:

(number of workers X hours/day X number of days)(number of workers X hours/day X number of days) / / (5 (5

hours/unit)hours/unit)

For Jan.: For Jan.:

(41 workers X 8 hours/day X 22 days) / (5 hours/unit) = 1443.2 (41 workers X 8 hours/day X 22 days) / (5 hours/unit) = 1443.2

and rounding normally to 1443.and rounding normally to 1443.

For Feb the only difference is 41 cumulative days in place of 22. For Feb the only difference is 41 cumulative days in place of 22.

The result is 2689.6 and rounded to 2690The result is 2689.6 and rounded to 2690


Forecast 1,800 1,500 1,100 900 1,100 1,700

Safety Stock 450 375 275 225 275 425

Beginning Inventory

400 450 375 275 225 275

Days in a month

22 19 21 21 22 20

Cum Days 22 41 62 83 105 125

Required Production

1,850 1,425 1,000 850 1,150 1,850

Cum req Prod

1,850 3,275 4,275 5,125 6,275 8,125

Actual Cum Prod

1443 2690 4067 5445 6888 8200

Excess 0 0 0 320 613 75

Shortage 407 585 208 0 0 0

1,000

2,500

4,000

5,500

7,000

8,500

10,000

0 1 2 3 4 5 6 7

Quarter

Cu

m P

rod

uct

ion

Req cum prodn Act cum prod

Excess or (Short)Excess or (Short)

= (Cumulative Production Required) - (Cumulative Produced)= (Cumulative Production Required) - (Cumulative Produced)

Shortage CostsShortage Costs

This cost is the number short in any period X the stock out costThis cost is the number short in any period X the stock out cost

For Jan it is (407 units) X stock out costFor Jan it is (407 units) X stock out cost

Storage CostsStorage Costs

This cost is the number excess in any period X the storage costThis cost is the number excess in any period X the storage cost

For April it is (320 units) X shortage costFor April it is (320 units) X shortage cost

If we have 36 workers in the beginning of the planning horizon,If we have 36 workers in the beginning of the planning horizon,

Hiring CostHiring Cost = =

(41 required workers – 36 available workers) X hiring cost (41 required workers – 36 available workers) X hiring cost

Lay-off CostLay-off Cost = 0 = 0

Total CostTotal Cost = storage + shortage + hiring + Lay-off = storage + shortage + hiring + Lay-off

Chase StrategyChase Strategy

Workers RequiredWorkers Required

From the Beginning Information and Starting Conditions we From the Beginning Information and Starting Conditions we

know:know: 1,850 units need to be produced during Jan.1,850 units need to be produced during Jan.

Each unit requires 5 labor hoursEach unit requires 5 labor hours Each worker works 8 hours/dayEach worker works 8 hours/day

The month of Jan. has 22 work daysThe month of Jan. has 22 work days

(1850 units) X (5 hours/unit) / (8 hours/person-day) X (22 days) = (1850 units) X (5 hours/unit) / (8 hours/person-day) X (22 days) =

52.56 persons52.56 persons

52.56 is rounded up (to 53), because if we round down we will 52.56 is rounded up (to 53), because if we round down we will

not produce the required 1850 units. not produce the required 1850 units.

Remember that a chase strategy doesn't allow stock outsRemember that a chase strategy doesn't allow stock outs

Units ProducedUnits Produced

In Jan. if each person works 8 hours each of the 22 days, the In Jan. if each person works 8 hours each of the 22 days, the

number of worker hours available to produce products will be:number of worker hours available to produce products will be:

(53 people) X (8 hours/day) X (22 days) = 9328 worker hours(53 people) X (8 hours/day) X (22 days) = 9328 worker hours

The number of units that can be produced in Jan. will be the The number of units that can be produced in Jan. will be the

total worker-hours available in Jan. divided by the number of total worker-hours available in Jan. divided by the number of

worker-hours required for each unit. For Jan.:worker-hours required for each unit. For Jan.:

(9328 worker hours) / (5 worker hours/unit) = 1865.6 units(9328 worker hours) / (5 worker hours/unit) = 1865.6 units

We can round it to We can round it to 18661866

Workers HiredWorkers Hired

People Hired is the number of additional people needed to People Hired is the number of additional people needed to

meet the demand. For Jan. it is the difference between 53 meet the demand. For Jan. it is the difference between 53

(people required in Jan.) and the 36 people at the start.(people required in Jan.) and the 36 people at the start.

53 - 36 = 1753 - 36 = 17

Hiring CostHiring Cost

In Jan. company hired 17 additional employees. In Jan. company hired 17 additional employees.

The cost of hiring 17 people is 17 X Hiring costThe cost of hiring 17 people is 17 X Hiring cost

People Laid OffPeople Laid Off

This is similar to people hired. It is the number of fewer workers This is similar to people hired. It is the number of fewer workers

we need as demand declines. we need as demand declines.

For Feb., it is For Feb., it is 53 - 47 = 6.53 - 47 = 6.

Layoff CostLayoff Cost

The cost of Laying Off 6 people is 6 X lay-off costThe cost of Laying Off 6 people is 6 X lay-off cost

Ending InventoryEnding Inventory

Ending inventory is the number of cumulative unused units at the Ending inventory is the number of cumulative unused units at the

end of any one month. Cumulative means we need to consider end of any one month. Cumulative means we need to consider

not only what happens this month, but also what happened the not only what happens this month, but also what happened the

previous month.previous month.

Prod. People Units People People EndingReg. Req. Prod. Hired LaidOff Inv.

Jan. 1,850 53 1866 17 16Feb. 1,425 47 1429 0 6 20

March 1,000 30 1008 0 17 28April 850 25 840 0 5 18

Inventory CostInventory Cost

Number of units in Ending Inv. for any one month Number of units in Ending Inv. for any one month xx holding Cost holding Cost

The beginning inventory for Jan. is 0. We need 1850 units and The beginning inventory for Jan. is 0. We need 1850 units and

we produce 1866. The difference (1866 - 1850 = we produce 1866. The difference (1866 - 1850 = 1616) is the Ending ) is the Ending

Inv. for Jan.Inv. for Jan.

For Feb. one needs to consider the inventory in the previous For Feb. one needs to consider the inventory in the previous

month (month (1616 for Jan.) for Jan.)

In Feb. with 47 people one can produce 1429 units. In Feb. with 47 people one can produce 1429 units.

1429 is 4 more than than the production required (1425). 1429 is 4 more than than the production required (1425).

These 4 additional units added to Jan. Ending Inv. gives These 4 additional units added to Jan. Ending Inv. gives 2020 units units

of Ending Inv. in Feb.of Ending Inv. in Feb.

ExampleExample

2.5 hrs/gallon2.5 hrs/gallon

65 days/quarter65 days/quarter

8 hrs/day8 hrs/day

Hiring cost = 1000Hiring cost = 1000

Firing cost = 2000Firing cost = 2000

Inventory carrying cost = 50 per gallon per quarter Inventory carrying cost = 50 per gallon per quarter

Stock out cost = 100 per gallon per quarterStock out cost = 100 per gallon per quarter

Starting work force = 200Starting work force = 200

Product Q1 Q3 Q3 Q4

A 2500 12500 7500 7500B 7500 20000 20000 7000C 30000 25000 27500 33000

Find the following for Level and Chase strategiesFind the following for Level and Chase strategies

No. of workers required per dayNo. of workers required per day

Units produced per quarterUnits produced per quarter

Beginning and end inventoriesBeginning and end inventories

Inventory costsInventory costs

Stock out costsStock out costs

Hire and lay-off costsHire and lay-off costs

Quarter Q1 Q3 Q3 Q4

Req Production

40000 57500 55000 47500

Master Production Scheduling

Objectives of MPS

• Determine the quantity and timing of completion of end Determine the quantity and timing of completion of end

items over a short-range planning horizon.items over a short-range planning horizon.

• Schedule end items (finished goods and parts shipped as Schedule end items (finished goods and parts shipped as

end items) to be completed promptly and when promised to end items) to be completed promptly and when promised to

the customer.the customer.

• Avoid overloading or under-loading the production facility Avoid overloading or under-loading the production facility

so that production capacity is efficiently utilized and low so that production capacity is efficiently utilized and low

production costs result. production costs result.

Independent Demand

Dependent Demand

PARENTPARENT

COMPONENTSCOMPONENTS


1,2001,500

Aggregate Production Plan shows the total quantity of

bicycles

100300Mountain bike

450450500500Hybrid bike

100100100100Road bike

Master Production Schedule Shows the specific type and quantity of bike to be

produced

87654321Weeks

FebruaryJanuaryMonths



Arizona Instruments produces bar code scanners for Arizona Instruments produces bar code scanners for

consumers and other manufacturers on a produce-to-stock consumers and other manufacturers on a produce-to-stock

basis. The production planner is developing an MPS for basis. The production planner is developing an MPS for

scanners for the next 6 weeks.scanners for the next 6 weeks.

The minimum lot size is 1,500 scanners, and the safety The minimum lot size is 1,500 scanners, and the safety

stock level is 400 scanners. There are currently 1,120 stock level is 400 scanners. There are currently 1,120

scanners in inventory. The estimates of demand for scanners in inventory. The estimates of demand for

scanners in the next 6 weeks are shown on the next slide.scanners in the next 6 weeks are shown on the next slide.

Demand EstimatesDemand Estimates

CUSTOMERS CUSTOMERS

BRANCH WAREHOUSES BRANCH WAREHOUSES

MARKET RESEARCH MARKET RESEARCH

PRODUCTION RESEARCHPRODUCTION RESEARCH

500500

200200

00

1010

11

00

5050

300300

10001000

00

00

500500

400400

22 33 44

200200

000000

300300500500

00101000

700700

6655

10001000

200200

WEEKWEEK


CUSTOMERS CUSTOMERS

BRANCH WAREHOUSES BRANCH WAREHOUSES

MARKET RESEARCH MARKET RESEARCH

PRODUCTION RESEARCHPRODUCTION RESEARCH

500500

200200

00

1010

11

00

5050

300300

10001000

00

00

500500

400400

22 33 44

200200

000000

300300500500

00101000

700700

6655

10001000

200200

WEEKWEEK

TOTAL DEMAND TOTAL DEMAND

BEGINNING INVENTORY BEGINNING INVENTORY

REQUIRED PRODUCTIONREQUIRED PRODUCTION

ENDING INVENTORYENDING INVENTORY

710710

11201120

00

410410 560560

15001500

410410

13501350

11601160

15001500

900900

560560

700700

12501250950950460460

46046011601160

150015001500150000

10101010 12001200

950950


SCANNER PRODUCTIONSCANNER PRODUCTION 00 15001500 15001500 150015001500150000

11 22 33 44 6655

WEEKWEEK


• As orders are slotted in the MPS, the effects on the As orders are slotted in the MPS, the effects on the

production work centers are checkedproduction work centers are checked

• Rough cut capacity planningRough cut capacity planning identifies under-loading or identifies under-loading or

overloading of capacityoverloading of capacity

Rough Cut Capacity Planning

Texprint Company makes a line of computer printers on a Texprint Company makes a line of computer printers on a

produce-to-stock basis for other computer manufacturers. Each produce-to-stock basis for other computer manufacturers. Each

printer requires an average of 24 labor-hours. The plant uses a printer requires an average of 24 labor-hours. The plant uses a

backlog of orders to allow a level-capacity aggregate plan. This backlog of orders to allow a level-capacity aggregate plan. This

plan provides a weekly capacity of 5,000 labor-hours.plan provides a weekly capacity of 5,000 labor-hours.

Texprint’s rough-draft of an MPS for its printers is shown on the Texprint’s rough-draft of an MPS for its printers is shown on the

next slide. Does enough capacity exist to execute the MPS? If next slide. Does enough capacity exist to execute the MPS? If

not, what changes do you recommend?not, what changes do you recommend?


PRODUCTIONPRODUCTION 100100 200200 200200 280280250250

11 22 33 44 55

WEEKWEEK

TOTALTOTAL

10301030

LOADLOAD 24002400 48004800 48004800 6720672060006000 2472024720

CAPACITYCAPACITY 50005000 50005000 50005000 5000500050005000 2500025000

UNDERUNDER or or OVEROVER LOAD LOAD 26002600 200200 200200 1720172010001000 280280


• Rough-Cut Capacity AnalysisRough-Cut Capacity Analysis

– The plant is under-loaded in the first 3 weeks (primarily The plant is under-loaded in the first 3 weeks (primarily

week 1) and it is overloaded in the last 2 weeks of the week 1) and it is overloaded in the last 2 weeks of the

schedule.schedule.

– Some of the production scheduled for week 4 and 5 Some of the production scheduled for week 4 and 5

should be moved to week 1.should be moved to week 1.


MPS rules

– Do not change orders in the frozen zoneDo not change orders in the frozen zone

– Do not exceed the agreed on percentage changes when Do not exceed the agreed on percentage changes when

modifying orders in the other zonesmodifying orders in the other zones

No ChangeNo Change+/- 5%+/- 5%

ChangeChange

+/- 10%+/- 10%

ChangeChange

+/- 20%+/- 20%

ChangeChange

+/- 20%+/- 20%

ChangeChange

FrozenFrozen

1-21-2 weeksweeks 2-42-4

weeksweeks4-64-6

weeksweeks

6+ 6+ weeksweeks

MPS rules

– Try to level load as much as possibleTry to level load as much as possible

– Do not exceed the capacity of the system when Do not exceed the capacity of the system when

promising orders.promising orders.

– If an order must be pulled into level load, pull it into the If an order must be pulled into level load, pull it into the

earliest possible week without missing the promise.earliest possible week without missing the promise.

Documents

Aggregate Planning